WORLD MARITIME UNIVERSITY Malmö, Sweden IMPACT OF PORT EFFICIENCY AND PRODUCTIVITY ON THE ECONOMY OF BANGLADESH – A CASE STUDY OF CHITTAGONG PORT By HALIMA BEGUM Bangladesh A dissertation submitted to the World Maritime University in partial fulfillment of the requirement for the award of the degree of MASTER OF SCIENCE in MARITIME AFFAIRS (Port Management) 2003 © Copyright Halima Begum, 200 ii ABSTRACT Title of dissertation: Impact of port efficiency and productivity on the economy of Bangladesh – A case study of Chittagong Port. Degree: MSc. This dissertation is a study of evaluating the performance of the Chittagong Port to find out the impact on the economy of Bangladesh. With this end in view, the over all socio-economic situation of Bangladesh has been analyzed in general and the economic impact of the port in particular. Chittagong Port is the ‘Gateway of Bangladesh’ as more than 80% of export and import cargoes are transported through this port. It is a self-financing service oriented organization. The management and the operation systems are still like first generation port. The average revenue earning of the port is about 1.4% of average Annual Income of the country. It provides 23,000 employment opportunities directly and generating per year about 57million dollars as added value excluding the indirect and induced impact. Based on the various performance indicators, it is found that the performance of CPA is very low. The growth rate is 4% for cargo and 11% of container as it handles only the captive cargo. The average turn-around time of a ship is 6 days and average dwell time of imported container is 25 days. The inefficiency cost to the economy is worked out at $92million per year, which is about 1.5% of average export earning of Bangladesh. On the other hand, during 2001-2002 an improvement of 1.05 days in turn- around time over the previous year the ship owners have saved up to $15million. ii The dependency on maritime transport is increasing successively with the increase of international trade of the country. Port activities are a derived demand of trade. About 30% of the annual income of the country comes from imported goods in the form of import duties and taxes. Furthermore, CPA earns foreign currency, which is about 1.5% of the average deficit trade balance. Hence, the importance of port efficiency is unquestionable, in a country like Bangladesh. Keywords: Efficiency, Performance, Economic impact, Turn-around time, Dwell time. iii TABLE OF CONTENTS Page Declaration ii Acknowledgement iii Abstract iv Table of Contents vi List of Tables x List of Figures xii List of Abbreviation xiii 1 Background and objective of the study 1.1 Introduction 1 1.2 Relationship among macroeconomics, port economics and port performance 2 1.3 Impact on the export and import prices 3 1.4 Background of the study 4 1.5 Objective of the study 5 1.6 Research methodology 5 1.7 Limitations 6 1.8 Scope 6 1.9 Conclusion 7 2 Socio-economic aspects of Bangladesh 2.1 Introduction 8 2.2 Geographical location, physical and topographical features 8 2.3 Population 8 2.4 Economy 9 2.4.1 Macro economic indicators 9 2.4.2 Balance of trade 10 2.4.3 Maritime dependency factor 11 2.4.4 Balance of payment 11 2.4.5 Dependency on foreign aid and loan 12 page 2.4.6 Annual budget 2003-04 12 2.4.7 Foreign currency reserve 13 2.5 Conclusion 14 3 Role and function of the Chittagong Port Authority and impacts on the economy 3.1 Introduction 15 3.2 History 15 3.3 Administration 16 3.4 Objectives 16 3.5 Functions of the Authority 16 3.6 Planned capacity and handling 17 3.7 Port administration model 18 3.8 Finance 19 3.9 Cargo and container operation 20 3.10 Development programme 21 3.11 Hinterland and foreland connection 21 3.11.1 Dhaka ICD 22 3.12 Traffic forecast 23 3.13 SWOT analysis 24 3.13.1 Strength 24 3.13.2 Weakness 24 3.13.3 Opportunities 25 3.13.4 Threats 25 3.14 The Role of port on the national economy 26 3.14.1 Direct impact 27 3.14.2 Indirect impact 28 3.14.3 Induced impact 29 3.15 Local economic impact of investment and maintenance 29 3.16 Conclusion 30 page 4 Performance of Chittagong Port and comparison with other Ports 4.1 Introduction 31 4.2 Indicators of Service 33 4.2.1 Ship turn-around time 33 4.2.2 Waiting time 35 4.2.3 Service time 35 4.2.4 Grade of waiting time 36 4.3 Berth utilization indicators 36 4.3.1 Berth occupancy 37 4.3.2 Berth worked time ratio 37 4.4 Handling indicators 38 4.4.1 Berth output 38 4.4.2 Ship output 39 4.4.3 Gang output 39 4.5 Equipment utilization and availability 40 4.5.1 Downtime 41 4.5.2 Utilization of equipment 42 4.6 Storage indicator 44 4.6.1 Dwell time 45 4.7 Quality of service indicator 45 4.7.1The working hours 46 4.8 Reliability indicator 47 4.9 Financial indicators 47 4.10 The information system 48 4.11 Comparison with other ports 48 4.11.1 Local port 48 4.11.2 Regional port 49 4.12 Projection of container port capacity in Indian sub-continent50 4.13 Conclusion 51 page 5 Impact of port performance on Bangladesh economy 5.1 Introduction 53 5.2 Efficiency benefit to ship for 2001-2002 54 5.3 Inefficiency cost to ship and cargo 54 5.3.1 Cost to ship 54 5.3.2 Dwell time cost of cargo 55 5.3.3 Cost of lighterage 56 5.4 Conclusion 56 6 Constraints of efficient port performance 6.1 Introduction 58 6.2 Forces of change 58 6.3 Major constraints 59 6.3.1 Institutional/organizational constraints 59 6.3.2 Labour and employment constraints 64 6.3.3 Logistic support/physical facilities 65 6.4 Conclusion 68 7 Conclusion and Recommendations 7.1 Conclusion 69 7.2 Recommendation 70 7.2.1 Short term measures 70 7.2.2 Long term measure 73 References 74 Appendices Appendix A Map of Bangladesh 78 Appendix B Organogram of CPA 79 Appendix C Details of facilities 80 Appendix D Details of ongoing development projects 82 Appendix E Details of equipment downtime, availability and utilization 83 Appendix F Location of Chittagong Port 84 LIST OF TABLES page Table 2.1 Population 9 Table 2.2 Macroeconomic indicators 10 Table 2.3 Balance of trade of Bangladesh 10 Table 2.4 Maritime dependency factor 11 Table 2.5 Balance of payment of Bangladesh 12 Table 2.6 Dependency on foreign aid and loan 12 Table 2.7 Annual Budget (2003-2004) 12 Table 2.8 Revenue earning on account of import duty and taxes 13 Table 2.9 Foreign currency reserve 13 Table 3.1 Import and export cargo handled through CPA 17 Table 3.2 Container and container cargo throughput 18 Table 3.3 Foreign currency earned by CPA 20 Table 3.4 ICD throughput and share of port traffic 22 Table 3.5 Container throughput forecast up to 2005 and as projected in the Master Plan and Study Report 23 Table 3.6 Value added service of CPA 28 Table 3.7 Employment opportunity and salary 28 Table 3.8 Direct impact 30 Table 4.1 Turn-around time of vessel 34 Table 4.2 Waiting time of ship 35 Table 4.3 Service time of ship 35 Table 4.4 Grade of waiting time 36 page Table 4.5 Berth occupancy ratio 37 Table 4.6 Container handling at CCT and GCB 39 Table 4.7 Ship output 39 Table 4.8 Gang output 39 Table 4.9 Gang and ship output of JNP, Colombo and Singapore Port 40 Table 4.10 Equipment availability 41 Table 4.11 Demand and availability of container handling equipment, July- Dec 2002 43 Table 4.12 Average Dwell time of containers at CPA 45 Table 4.13 CPA opening hours as compared to non-coordinating hours 46 Table 4.14 Financial indicators 48 Table 4.15 Performance Indicators of Kolkata Port Trust for 2001-02 50 Table 4.16 Future container port capacity in Indian sub-continent 51 Table 5.1 Savings to ship due to improved turn-around time (2001-2002) 54 Table 5.2 Per year inefficiency cost to ship 54 Table 5.3 Opportunity cost to the importer (for manufacturing goods) 55 Table 5.4 Opportunity cost to the exporter (for RMG) 56 Table 5.5 Lighterage cost 56 Table 5.6 Total inefficiency cost 57 Table 6.1 List of annual holidays and leave in CPA 63 LIST OF FIGURES Page Figure 1.1 Relationship of macroeconomics and port economics 2 Figure 1.2 Impact on export and import price 4 Figure 3.1 Income and expenditure of CPA 19 Figure 3.2 Modal split of cargo 21 Figure 4.1 Berth operation flow 33 Figure 4.2 Distribution of port expenses 34 Figure 4.3 Ship service time 38 Figure 6.1 Forces of change and their impact 58 ii LIST OF ABBREVIATIONS ADB - Asian Development Bank BC - Before Christ BIWTA - Bangladesh Inland Water Transport Authority BOI - Board of Investment CCT - Chittagong Container Terminal CBA - Collective Bargaining Agent C&F Agent - Clearing and Forwarding Agent CFS - Container Freight Station CFTC - Chittagong Feeder Trade Committee CIF - Cost, Insurance and Freight CPA - Chittagong Port Authority DWMB - Dock Workers Management Board EDI - Electronic Data Interchange EPZ - Export Processing Zone EU - European Union FCL - Full Container Load FEU - Forty Foot Equivalent Unit FOB - Free on Board GCB - General Cargo Berth GDP - Gross Domestic Product ICD - Inland Container Depot IT - Information Technology JNPT - Jarharlal Nehru Port Terminal LCL - Less Container Load LOA - Length Over All ISPS Code - International Ship and Port Facility Security Code 1 MDS - Maritime Dependency Factor MIS - Management Information System MPA - Mongla Port Authority NBR - National Board of Revenue POL - Petroleum Oil RMG - Ready Made Garments RTG - Rail Mounted Gantry SSA - Stevedoring Services of America TEU - Twenty Foot Equivalent Unit UK - United Kingdom UNCTAD - United Nations Conference on Trade and Development USA - United States of America VAT - Value Added Tax VTS - Vessels Traffic System 2 CHAPTER 1 Background and objective of the study 1.1 Introduction The efficiency of a port is the La mode of the present international trade since a seaport is the nerve centre of foreign trade of a country.